Buy-to-let mortgage / affordability

tommy-house

Hello all, I'm seeking some advice before speaking to a mortgage broker / financial advisor.

I am looking to buy a 6/7 bedroom house which I (27 years old) will live in and rent the other rooms to young professionals like me. Hopefully people can shed light on whether I can get a mortgage/several mortgages to cover the value. My situation is a little complicated but I am flexible and open to suggestions. Here are some details:

-Purchase house value approx £400k
-Potential rental income of new house £450 to £500 per room per month
-Basic income £31k, but last few years P60 show above £42k due to overtime
-Savings of £80k
-No real debts and good credit history
-I'm very frugal and good with finances

-Current own a flat outright (value approx £80k to £90k)
-Flat currently let out at £500 per month
-Able to transfer 50% of value of flat to my father so that i own less than £40k stake in house and don't trigger the "additional stamp duty surcharge".


Do you see any way this could work? Preferably I'd be keeping my flat to rent out rather than selling it.

Any help greatly appreciated

ACG

It wouldnt be a BTL as you live there and your income would fall some way short.

Personally I cant see this happening.

tommy-house

ACG wrote: »

It wouldnt be a BTL as you live there and your income would fall some way short.

Personally I cant see this happening.

Thanks for the reply.
From an affordability point of view, it think it could easily work.
Problem is convincing the banks...

Here's my calculations:

Salary gross income: £3500 pcm
Rental income pre tax (conservative approximate based on 75% of max rental income): £2600 pcm

(Yearly income £73,200 pre tax)

Outgoings based on borrowing £300,00 over 40 years:
Mortgage: £1,200 pcm
Bills: £900pcm (which includes all provisions for tenants)

I guess my question is really how to swing it to get the largest mortgage/mortgages possible, as the income from salary and rents will easily cover the outgoings.

Prothet_of_Doom

I'm pretty sure that if you meet the criteria, you can get a HMO/BTL mortgage, which will include the requirement to be an experienced landlord and fit person to manage a HMO.

Unfortunately you seem to want to defraud the HMRC (who represent all of us who pay the correct tax and wish everyone else would too), which means you might not a suitable person to manage a HMO.

Even if you only own 0.0000000000001% of that other place you have to pay that extra 3% - unless you sold it to a ltd company which you were a director of.

The other issues about the HMO mortgage is that you will need at least 25% deposit, and they won't allow you to live there. (I know this because I wanted my ltd company (thus saving the extra 3% stamp duty) to buy a HMO with a mortgage, and rent me one room monday to friday and rent one room as a holiday let and the other 2 as AST's.

3 mortgage brokers laughed. The figures stacked up like yours probably do.

If you sell the flat you won't have a property, and then the BTL / HMO mortgage conditions can't be met (they expect you to have a property to live in)

But I see it very simply.

Issue s21 to current tenants. (poor sods)
Evict.
Move in.
Remortgage to get deposit and stamp duty and fees and conversion costs (do you know what changes to meet fire regs you'd need) - assuming your flat is worth £90K, you should be able to get £81K out of it, with a deposit of 9K ?
So now you have £161K cash. £100K for the 25% deposit, £15K to convert it, £5K for solicitors etc and £22K for stamp duty, 10K for furniture and decoration.
Don't forget to research your obligations, and licencing requirements.

DO IT !!!!!!!!!

ACG

On an application you have to declare what your income is, not what it will be - which is why the income does not stack up. In order to use income from rent, you need to have earned it for atleast a year and declared it to the tax man.

You then have the issue of trying to get a BTL mortgage on a property that you live in or a residential mortgage on property you rent out.

If you kept it below the local HMO guidelines (typically 3 or 4 people including yourself) then you might be able to do with 1 lender but even that I would not be overly confident.

Prothet_of_Doom

Interest will be 5% x £300,000K = £15K
7 rooms at 10 month occupancy x £450 = £31K
Costs ? Council Tax, Heating, lighting, water, insurance, Cleaning of communal areas, advertising, repairs, gardening ?????? I'd say £700 a month at a guess. say £8K a year

Profit before tax = £8K a year



What if interest rate were 8% and occupancy were 9 months average

Interest is £24K
Income is £28.4
Costs £8
Loss = £3.6K

What if interest rate occupancy was 11 months average room £475

Interest is £15K
Income is £36.5K
Costs £8K
Profit = £13.5K

It's worth thinking about - the way to be "rich" is to maximise your income whilst penny pinching on the costs.

Return on investment best case is 13.5/160 = 8.5%

None of this actually pays off the loan. :rotfl:

Not the easiest way to get rich.

tommy-house

ACG wrote: »

On an application you have to declare what your income is, not what it will be - which is why the income does not stack up. In order to use income from rent, you need to have earned it for atleast a year and declared it to the tax man.

You then have the issue of trying to get a BTL mortgage on a property that you live in or a residential mortgage on property you rent out.

If you kept it below the local HMO guidelines (typically 3 or 4 people including yourself) then you might be able to do with 1 lender but even that I would not be overly confident.

The transferal of 50% of the flat is all above board and in no way tax evasion.
I am essentially going into business with my father who is retired and used to work in facilities management so can look after both properties when I am away with work, he would be purchasing 50% of my flat to give me funds for the new property. Any interest in a 2nd property below 40k is exempt from triggering additional stamp duty surcharge.

As for the fire regulations, the house I am looking at purchasing was previously a HMO and has all the required facilities.

tommy-house

Prothet_of_Doom wrote: »

Interest will be 5% x £300,000K = £15K
7 rooms at 10 month occupancy x £450 = £31K
Costs ? Council Tax, Heating, lighting, water, insurance, Cleaning of communal areas, advertising, repairs, gardening ?????? I'd say £700 a month at a guess. say £8K a year

Profit before tax = £8K a year



What if interest rate were 8% and occupancy were 9 months average

Interest is £24K
Income is £28.4
Costs £8
Loss = £3.6K

What if interest rate occupancy was 11 months average room £475

Interest is £15K
Income is £36.5K
Costs £8K
Profit = £13.5K

It's worth thinking about - the way to be "rich" is to maximise your income whilst penny pinching on the costs.

Return on investment best case is 13.5/160 = 8.5%

None of this actually pays off the loan. :rotfl:

Not the easiest way to get rich.

Not looking at getting rich out of this, just an investment and a potential plan for early retirement. At your worst case scenario, losing £3.6k per year isn't really a concern considering I am living in a house for which I would have had to pay for out of my wages anyway.

tommy-house

ACG wrote: »

On an application you have to declare what your income is, not what it will be - which is why the income does not stack up. In order to use income from rent, you need to have earned it for atleast a year and declared it to the tax man.

You then have the issue of trying to get a BTL mortgage on a property that you live in or a residential mortgage on property you rent out.
.

This is what I had thought.
I hoped that there would be ways to achieve it as from a pure affordability viewpoint, it seemed feasible.

tommy-house

ACG wrote: »

If you kept it below the local HMO guidelines (typically 3 or 4 people including yourself) then you might be able to do with 1 lender but even that I would not be overly confident.

As a side note, if a say 5 bedroom property was just 2 storeys high, am i right in thinking that a large HMO license is not needed?
From local council:

It is mandatory (required by law) that there is a licence for properties that:

are three or more storeys high, and
have five or more people in more than one household, and
share amenities such as bathrooms, toilets and cooking facilities
These properties are known as 'Houses in Multiple Occupation' or 'HMO'.

xyz123

Good luck with ur search OP. Don't know where you leave but r u sure in the area where u can buy 7 bed house for £400k, in that area people will pay £450 rent for one room!